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How to monitor a company's NetZero plans - An abatement capacity framework

A framework that helps leaders feel more confident about publicly stating their companies' progress toward net zero.

How to monitor a company's NetZero plans

There are a lot of discussions about NetZero emissions these days. Numerous large corporations have committed to achieving this goal over the next few years, but what does it actually mean? And, perhaps more importantly, how can you determine whether they are progressing or not? An Abatement Capacity Assessment can assist you in answering these questions. We will explain what an Abatement Capacity Assessment is and how it can be used to track a company's progress toward NetZero in this blog post.

This framework instills greater confidence in leaders when they make public statements about their companies' progress toward net zero. Additionally, by providing a more detailed view of emissions, the assessments may assist regulators in prioritizing new regulations, innovators in determining research priorities, and investors in making more informed capital allocation decisions.

Emissions reductions through a bottom-up approach

Goals are only the beginning; the transition path to NetZero is critical, just as the actions I take to towards a goal are more important than simply declaring a goal(every company wants to be the number one in customer service, but what steps do they take to get there?). 15Rock's framework, which is aligned with the CPPIB's transition abatement framework, is action-oriented and heavily focused on actions that contribute to progress toward the goal.

Businesses are setting non-binding goal declarations then putting together documentation highlighting their plans. The corporations actions are not clearly connected to their overall goal, it creates a great deal of confusion among investors. For example, if a company is trying to lower it’s emissions from factories, they may list all the projects at the factory including social projects, which although good, do not contribute to the specific goal of reducing emissions at the factory.

Our framework aims to demonstrate the connection. If a project contributes to the achievement of the goal, it is modeled to track its progress. Similarly, if the contribution of a project is unknown, it is excluded. This helps investors only factor in the data that is truly connected to the goal and limit the noise.

Start now, not tomorrow - transition plans do not need to have 100% coverage.

When undertaking something new, there are bound to be unknowns. We cannot sit back and wait for all the answers; we must act aggressively now, as the situation is rapidly changing.  As General George S Patton said - “A good plan, violently executed now, is better than a perfect plan next week”.  We see many people waiting for the best solution which simply doesn’t exist today, we just need to take a step forward.

One of the most frequently asked questions by investors is how they use transition coverage to understand abatement capacity of the firm, and 15Rock has the ideal solution for this. There are numerous ways for an investor to become aware of a transition plan's limitations.

"In order to significantly reduce global emissions, businesses must begin locally by decarbonizing their operations, process by process, molecule by molecule." The CPPIB (The Future of Climate Change Transition Reporting).

With that in mind, let's look at how an investor can easily monitor this with 15Rock.

On 15Rock's platform, when a company creates a project linked to a goal, the project's impact is immediately visible in the context of the plan. For instance, if the goal is to reduce CO2 emissions from 10,000 tons to zero by 2050, the contribution of the project is shown as "transition coverage." Therfore, if a company has a plan to remove 5,000 tons, their overall coverage would be 50%.

Digging in further.

We wanted to demonstrate transitions plan creditability to investors using CPPIB's abatement capacity and PIMCO’s sustainable bond framework. As a result, we estimate a companies netZero project's impact against its timeline and compare it to the company's goal of reducing emissions, providing investors with a compelling chart of abatement capacity at any point in time.

Investors prefer this view because it enables them to identify areas of strength and weakness in plans. Investors can quickly obtain three pieces of information:

  1. Is the approach too weak? If abatement capacity is insufficient to achieve the required reductions, the annual decline required will continue to grow with each passing year, necessitating more aggressive approaches.
  2. Is the plan's duration acceptable? This is subjective to the investor, but it does allow for an examination of the duration of the projects. If the company has 27 years to reduce emissions and 50% coverage for five years, the investor can determine whether the company meets their needs or whether they must engage the company.
  3. Are the proposed plans excessively aggressive? This is not a frequent occurrence, but it has been brought to our attention a few times - some investors believe that setting excessively aggressive goals/plans diverts companies' attention away from their core businesses and diverts resources to transforming operations. Although 15Rock supports a bold approach for the sake of the climate, we recognize that investors are frequently most concerned with the firm's continued viability.

The CPPIB report contains some novel approaches, and our system is capable of conducting an Abatement Capacity Assessment (ACA). The second component of their framework is their Projected Abatement Capacity (PAC) calculation, which our system also automates. Thanks to the fact that each corporation’s projects are managed and tracked independently on a project-by-project basis, we are able to forecast a bottom up analysis on the company’s plans to achieve their impact goal.

There is an exciting final section; CPPIB divides the projected abatement capacity into economical and uneconomical categories. This is so they can distinguish between what is feasible/reasonable and what is not feasible at the moment (technically or economically impossible). 15Rock also addresses this by only modelling projects that have targets, project level KPIs, and start/end dates. - therefore we model projects where the abatement is known and, while we accept projects without projections, we do not model them if the abatement cannot be reliably attributed to the project's goals.

We are pleased to be aligned with this approach, which we believe will not only aid in mitigating climate risk, but will also make corporations more comfortable reporting their progress in this area.

This feature is included free of charge in 15Rock's system with the goal of accelerating global adoption.  While this approach is beneficial, managing reports from multiple companies can be quite time consuming. We assist businesses in transitioning away from Excel in order to achieve this level of reporting at scale.

I hope this helps, and please do not hesitate to contact us if you have any suggestions or would like to discuss our solution in greater detail.

It doesn’t matter where you are as long as you start, A body in motion tends to stay in motion, and a body at rest tends to rest in peace.

Do you want to impact the world? Come work with 15Rock. You will get to collaborate with clients all across the world and address complex financial and climate risk concerns.

Gautam Bakshi

Head of Product & Engineering

Former: MD - Private Markets, Wealth & Asset Management, Manulife. Education: Ryerson University, Seneca College

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